Market Misreaction? Leverage and Mergers and Acquisitions (original) (raw)
Related papers
The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry
SSRN Electronic Journal, 2020
Mergers and acquisitions (M&As) are mainly a mechanism used in the Latin American banking industry to carry out business consolidation. This paper focuses on the effect of M&A announcements on stocks of Latin American banks and their rivals between 2000 and 2019. We evaluate two impacts of M&A announcements: impacts on cumulative abnormal returns (CAR) and impacts on event-induced variance (EIV). We use the GARCH-based event-study method. We find that acquirers and target banks have a statistically significant CAR, however, the sign is inconclusive. Rivals of acquirers and targets are not affected by M&A announcements. In general, we observe that EIV is negative for acquirers, targets, and rivals. Finally, we estimate a multivariate GARCH model to isolate the effects of co-movements of volatility between the acquirer and the target, and we find that the results remain qualitatively equal.
The Impact Of Announcements Of Mergers And Acquisitions (M&A) On Stock Returns
International Journal of Artificial Intelegence Research, 2024
One of the corporate actions carried out by companies is mergers and acquisitions (M&A). This research aims to examine the impact of merger and acquisition (M&A) announcements on stock returns of banking companies listed on LQ 45 for the 2011-2021 period. This research uses the event study method, with 3 banking companies from 8 merger and acquisition (M&A) events, with an event window of 91 days, namely 45 days pre-announcement, 1 day of announcement and 45 days post-announcement. The results of this research show that the market responded positively to 8 merger and acquisition (M&A) announcement events. The benefit of this research is for policy makers to stimulate stock prices with the help of various announcements from their corporate action strategies. Investors will be helped in understanding stock market mechanisms in making wise investment decisions before reacting to corporate actions. Meanwhile, policy makers are interested in influencing stock prices and investors are interested in the composition of risk-return parameters in their portfolios. This research will act as an important investment tool for both.
This study investigates whether Mergers and Acquisitions (M&As) continue to be an effective means of capital allocation in periods of increasing risks and decreasing banking regulation. To examine this hypothesis, abnormal returns are investigated for the largest bank-to-bank mergers in the US for the period 2005 to 2011. We find that M&As are associated with high market returns for Target companies, negative returns for Acquirers and positive Joint market value returns. By computing standardised Cumulative Abnormal Returns (SCARs), we find that the gains for Target banks are statistically significant. In particular we find that on a 3-day event window, Target Banks appreciated approximately by 9.7% while bidders lose approximately 0.45% of their value for the same period. Average appreciation of the market value of target companies for an 11-day event window is estimated at 22.94%. Our results are in line with the findings of previous studies based on US data. Nevertheless we found abnormal returns for Target Banks that are significantly higher than in other studies. Abnormal returns before the announcement day are significant, whilst the abnormal returns after the announcement day are not significant. Our findings provide support for the hypothesis that deregulation has been associated with benefits for the joint bank value, albeit not statistical significant. Our findings are significant for fund managers and regulators. If mergers are associated with increasing market value then they decrease the risk of the institutions involved. Our findings are also useful to fund managers because they 24 provide an indication that there are no post-announcement gains for involved banks, so fund strategies could reduce post-announcement investments in banks that are involved in M&As.
2020
Mergers and acquisitions (M&As) are mainly a mechanism used in the Latin American banking industry to carry out business consolidation. This paper focuses on the effect of M&A announcements on stocks of Latin American banks and their rivals between 2000 and 2019. We evaluate two impacts of M&A announcements: impacts on cumulative abnormal returns (CAR) and impacts on event-induced variance (EIV). We use the GARCH-based event-study method. We find that acquirers and target banks have a statistically significant CAR, however, the sign is inconclusive. Rivals of acquirers and targets are not affected by M&A announcements. In general, we observe that EIV is negative for acquirers, targets, and rivals. Finally, we estimate a multivariate GARCH model to isolate the effects of co-movements of volatility between the acquirer and the target, and we find that the results remain qualitatively equal.
Bank monitoring and acquirer returns: Evidence from the U.S. syndicated loan market
International Finance Review, 2013
This paper investigates the asymmetric behavior of the selling, general and administrative (SG&A) costs of acquirers, and reveals its effects on mergers & acquisitions (M&A) performance in a one-year event window. It is based on a sample of 6888 M&As completed in the U.S. during the 2003-2015 period and employs panel data regressions. The results show that 73% of the acquirers display asymmetric cost behavior. A significant negative relation is found between cost stickiness and acquirers' abnormal returns following the merger announcement. Competition in the market for corporate control is positively related with acquirer returns but exacerbates the negative effects of cost-stickiness on abnormal returns of acquirers. The acquirers' risk of default is significantly negatively related to the abnormal returns they generate. This adverse effect of default risk on returns is stronger for acquirers with anti-sticky costs. Acquirer risk offsets the positive effects of competition on returns. Acquirers with sticky costs have lower abnormal returns than those with anti-sticky costs in a one-year window. The present study contributes to the literature by revealing the asymmetric cost behavior of acquirers involved in merger activity during the last decade, and provides evidence for an alternative explanation for the lower abnormal returns of the acquiring firms.
This study attempts to examine the effect of mergers and acquisitions completion announcements on the stock price behavior for two anchor banks; Hong Leong Bank Berhad and Arab Malaysian Bank Berhad. The analysis uses the event study technique, the Naïve Model, a model that is based on Market Model with constrained = 0 and = 1 to compute the abnormal returns surrounding the mergers and acquisitions completion announcement date; also to evaluate the effect of mergers and acquisitions completion announcement on the banks' return. This study also analyses the financial performance changes to provide a naïve analytical framework by using financial ratios for these two anchor banks. Overall, the result from event study shows that the mergers and acquisitions completion announcements are more likely to be treated as positive information. However, the results from financial performance measures for all the ratios, that are calculated, indicate that there is no improvement in any of the performance measures after the mergers and acquisitions is completed.
Changes in corporate performance associated with bank acquisitions
Journal of Financial Economics, 1992
This paper examines the post-acquisition performance of large bank mergers between 1982 and 1987. On the whole, the merged banks outperform the banking industry. Their better performance appears to result from improvements in the ability to attract loans and deposits, in employee productivity, and in profitable asset growth. Further, we find a significant correlation between announcement-period abnormal stock returns and t!:e various performance measures, showing that market participants are able to identity in advance the improved performance associated with bank acquisitions.
M&A Activity and the Capital Structure of Target Firms.
CEPR Discussioon paper DP14911
Using a large sample of European acquisitions, we find that acquired firms substantially close the gap between their actual and optimal leverage ratios. The bulk of this adjustment occurs quite rapidly-within a year of the acquisition. The typical over-levered firm adjusts its debt-to-assets ratio from 34.4% in the year before acquisition to 20% in the year after. (The adjustment is smaller, but still quite rapid, for targets that had been under-leveraged.) These adjustments occur primarily through debt issuances or retirements. We also investigate whether target firms' pre-merger leverage contributes to the probability of them being acquired. We find that firms further away from their optimal leverage are more likely to be acquired: for an average firm, an increase in the absolute leverage deviation from 1% to 10% of total assets increases the probability of being acquired by 4.1% to 5.6% (The larger effect applies to over-leveraged firms.) Overall, our results provide support for the trade-off theory of capital structure and suggest that financial synergies have a significant role in the typical European acquisition decision.
IAEME PUBLICATION, 2020
The objective of the present study is to analyse the merger and acquisition’s impact during the announcement on stocks return of acquirer banks which are listed in National Stock Exchange. This study is conducted across Indian banking sector consisting of 4 major banks merger in the year of 2019. The event study methodology has been applied for the event window of 11 days, 21 days and 61 days, i.e. -5 to +5 days stock returns, -10 to +10 days stock return and -30 to +30 days stock returns respectively. The shareholders return of acquiring banks and abnormal returns due to announcement of merger and acquisition have been examined. Findings of the present paper suggests that M&A announcement in banking sector in India leads price to downgrade for acquirer bank though the pattern was not consistent. The results are in consistent with the findings by Kumar et al. (2011), Onikoyi et al. (2014) and Mall & Gupta (2019).
The Impact of M&A Announcement and Financing Strategy on Stock Returns: Evidence from BRICKS Markets
International Journal of Economics and Finance, 2012
In this paper, we examine if M&A announcements and methods of financing these deals affect stock returns. Data is used for BRICKS from the period 2005-2009 and standard event study methodology is used for this purpose. We find significant pre-event returns for 5 out of 6 sample countries. This indicates possible leakages in the information system, which may not be surprising, given the emerging nature of these markets. Three of the BRICKS countries, i.e. India, South Korea and China provide significantly negative post-event returns while strong positive returns are observed in case of South Africa. The extra normal post-event returns defy semi-strong efficiency for majority of sample markets. We further find that M&A announcements do not significantly alter the trading liquidity and pricing efficiency of the sample stocks. However, return volatility does decline on post event basis. It is also observed that while stock financed mergers are value creating, cash financed mergers seem to be value destroying in the short run. The study is extremely relevant for common shareholders, global fund managers as well as financial regulators. The present research contributes to corporate restructuring as well as market efficiency literature, especially for emerging markets.